First investors eager to cut losses, say analysts Beleaguered mainland fund managers have denied they are facing pressure from investors who want to cash out of their qualified domestic institutional investor products in Hong Kong. The QDII scheme, which allows mainlanders to invest in foreign markets such as Hong Kong through approved funds, has come under close scrutiny after Minsheng Bank was forced to liquidate a product late last month after the net asset value fell by more than 50 per cent. The Hang Seng Index has dropped 12.76 per cent so far this year. The market is rife with speculation that mainland QDII funds had taken advantage of a rally in the Hang Seng Index on Wednesday to take profit. The index, which gained more than 1,000 points earlier in the session, closed up 734.9 points or 3.18 per cent at 23,872.43. 'Once the market moves higher again, they will definitely try to take profit and lock in their gains and move to other places,' said Alex Tang Yee-yuk, a research director at Core Pacific-Yamaichi International. However, some said the rebound in Hong Kong this week might be a godsend to the managers of China's overseas equity-based funds with expectations that it is time to hunt for bargains. 'We don't feel redemption pressure,' said Zhang Houqi, the deputy president of China Asset Management, one of the first mainland fund houses to embark on the QDII scheme. Analysts said QDII funds were being forced to increase their cash positions before potential heavy redemptions since the first batch of buyers wanted to cut losses. 'For QDII investors, everyone bought at the peak in November rather than October or September,' said Sheldon Gao, Schroders' country head for China. 'So everyone has lost.' Most of the funds launched late last year are trading at least 30 per cent below their initial value, one hedge fund manager said. However, one industry insider said yesterday that some new investors were showing interest in Hong Kong-listed mainland companies through QDII products. China Southern Fund Management said its QDII fund would seek to increase its exposure to Hong Kong stocks and buy into oversold plays. 'We are cautiously optimistic about the Hong Kong market, although volatile trading is still expected in the second quarter,' the company said. The H-share index yesterday extended gains for the fourth time in the past five trading days, adding 2.58 per cent or 330.22 points, to close at 13,137.57. 'More attractive valuations for the Hong Kong market and the recovery in sentiment are reasons for optimism,' said Jing Ulrich, JP Morgan's chairman for China equities. 'But there are still a lot of uncertainties, including the extent of the subprime crisis and of the slowdown in the US economy.'